Stock prices, output, and rational bubbles: evidence for the U.S. stock market
Stock prices, output, and rational bubbles: evidence for the U.S. stock market
The present-discounted value model of stock price determination implies that, rational bubbles being absent, stock prices and difference-stationary fundamentals should be cointegrated. When testing for non-cointegration, researchers often measure fundamentals in terms of dividends or earnings. Recent evidence, however, suggests that output tracks variation over time in expected stock returns and may, thus, serve as a useful proxy of fundamentals. In contrast to this evidence, we found that stock prices and output are not cointegrated. Our findings imply that, for the sample period that we analyzed, the possibility of periodically collapsing rational bubbles in the U.S. stock market cannot be ruled out.
467-471
Kizys, Renatas
9d3a6c5f-075a-44f9-a1de-32315b821978
Pierdzioch, Christian
60eb79c6-d98e-4ceb-a634-9acaf7ebc451
May 2012
Kizys, Renatas
9d3a6c5f-075a-44f9-a1de-32315b821978
Pierdzioch, Christian
60eb79c6-d98e-4ceb-a634-9acaf7ebc451
Kizys, Renatas and Pierdzioch, Christian
(2012)
Stock prices, output, and rational bubbles: evidence for the U.S. stock market.
The Empirical Economics Letters, 11 (5), .
Abstract
The present-discounted value model of stock price determination implies that, rational bubbles being absent, stock prices and difference-stationary fundamentals should be cointegrated. When testing for non-cointegration, researchers often measure fundamentals in terms of dividends or earnings. Recent evidence, however, suggests that output tracks variation over time in expected stock returns and may, thus, serve as a useful proxy of fundamentals. In contrast to this evidence, we found that stock prices and output are not cointegrated. Our findings imply that, for the sample period that we analyzed, the possibility of periodically collapsing rational bubbles in the U.S. stock market cannot be ruled out.
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Published date: May 2012
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Local EPrints ID: 434400
URI: http://eprints.soton.ac.uk/id/eprint/434400
ISSN: 1681-8997
PURE UUID: 2cf0238b-d385-4d7b-9e83-bf308f061d73
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Date deposited: 23 Sep 2019 16:30
Last modified: 13 Dec 2021 03:33
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Author:
Christian Pierdzioch
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